The case for bailing out Detroit

November 17th, 2008 11:48 am · 9 comments

Hm. Got an e-mail last night from a guy I know who apparently works for an auto dealer, who forwarded along this missive in favor of a bailout for Detroit.

No comment on this, right now. Make up your own minds:

I have been proud to work for GM for the last 18 years. You will also admit that I try to be objective when it comes to our performance, seeking to fix areas of improvement, and not turn a blind eye. We haven’t always made the best products in the world, but that’s not the case today. I’m not going to take up your time with a sales pitch about GM, but I think you’d agree, GM is making the best products it ever has, the most vehicles that get over 30 mpg, the most with 5 star safety, import level quality and styling, the most hybrid models, and soon the Chevy Volt electric vehicle.

In short, we have our act together, and can compete with anyone. The problem we face is the same one the rest of America faces. The housing crisis has paralyzed the credit market, and the automobile business relies on the credit market. When was the last time you paid cash for your car? You either leased or financed it. Our government understands the role that credit plays in the economy. That’s why they gave the banks $700B. Why now are many reluctant to apply the same logic to the single largest manufacturing sector in our economy?

All we’ve ever asked for is a level playing field. Almost all of our import competitors don’t fund their employee’s health care. Their governments fund them. The Japanese have been manipulating their currency for the last decade. They have been literally dumping their products in this country for over 10 years. Yet we have to pay exorbitant tariffs if we want to sell in theirs. Here’s a stat that sums it up: In any country that there is a level playing field, GM outsells Toyota. The only two that we don’t? Japan and here in the US. Go figure.

A new study by the highly-respected Center for Automotive Research (CAR) concluded that if all three U.S. automakers were to cease operations, the U.S. economy would lose 2.95 million direct and indirect jobs in the first year. Governments would lose at least $156.4-billion in taxes over the first three years. Make no mistake, the collapse of the domestic auto industry would plunge our already fragile economy into a deep recession - costing American taxpayers far more than the cost of taking action now to help this critically important industry weather the economic storm.

I and the rest of our country need your help. If you could spare two minutes and visit http://gmfactsandfiction.com/ and click on “a Concerned American” on the right hand side, weâ’ve developed a quick and easy way for you to let your elected representatives know you support legislation that would help the automobile industry. May I also ask that you cascade this message to your friends, family and business associates that are also concerned about the potential impact losing our domestic automobile industry would have on this country.

In closing, let me stress, we are not looking for a bailout. We are asking for a bridge loan that would be repaid in full, with interest.

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9 comments Tags: Automotive Industry · Economy

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newsjunkie
11/17/08
11:32 AM

AS much as I was against the bank bailout...what's good for the goose is good for the gander...the banks (and brokerages) created this mess..first by over leveraging and now by freezing markets and "delevaraging" while they cover their "****"..First all that easy money created unsustainable demand n many markets including auto...which car companies geared up for...now , as the pendulum swings, there is unrealistically low demand as all those new cars we all bought have plenty of life left in them...and the car companies suffer to the point of dissolving...WHen rational market forces re-emerge (lets hope they are allowed to)..we as a country may have no manufacturing base left..and that is neither smart nor secure...I agree with the letter writer for the most part here..and was trying to explain these same factors to my mother just the other day when I told her I supported the gov't giving help to the automakers...

solitary
11/17/08
12:40 PM

QUOTE

A new study by the highly-respected Center for Automotive Research (CAR) concluded that if all three U.S. automakers were to cease operations, the U.S. economy would lose 2.95 million direct and indirect jobs in the first year. Governments would lose at least $156.4-billion in taxes over the first three years. Make no mistake, the collapse of the domestic auto industry would plunge our already fragile economy into a deep recession - costing American taxpayers far more than the cost of taking action now to help this critically important industry weather the economic storm.

Three million jobs, eh? Well, you're forgetting a few things, all the franchises that have a stake in all the GM brands (Buick, Cadillac, Chevy, GMC, Hummer, Oldsmobile, Pontaic, SAAB, Saturn, GM, Opel, Vauxhall, Daewoo) will drop the GM brands and the GM good wrench service and pick up Toyota, Honda, or somebody else. They've got too much invested in things other than cars, because none of the dealers own any of the new cars on their lots. So if GM goes away, the local GM dealer will just shift to something else. If they're smart, it won't be Ford or Chrysler either.
These same dealers can use a new marketing strategy that they're selling a domesticly produced product from Toyota or Honda, unlike previously when the products they were selling were made primarily or completely in Mexico or Canada.
I have to ask which market other than Japan/US does GM outsell Japanese makes? Are you referring to Opel and Vauxhall, which markets does Opel compete with Toyota? Of course Opel outsells Toyota in Germany. But you forgot to mention that Volvo is selling and servicing Nissans in Germany. (No, I'm serious, read it yourself)
I'm sorry that you think GM currently is making the best product out there and is doing lousy. You can't clean up 30 years of crap by piling the sweetest perfume on it.
If GM fails and Ford fails and Chrysler fails (what were you guys thinking, trying to buy that stinky mess?), others will take your place. There will be an initial job loss that will look huge, but in fact, will only be 1% or so of the population if your 3 million is accurate. Toyota will open new plants to accomidate the vacuum, those workers will find jobs.
All the times you've whined "CAFE costs jobs", you've skirted the fleet requirements by keeping overweight station wagons in the truck market and now, you want help from the gov't? You want help from me?
I love the 30 mpg comment, if the "domestic" makes weren't so horsepower happy, and so creative with the calculator, you all would produce 40 mpg cars, instead, you produce 20-25 mpg cars and use the EPA estimates as a marketing tool to claim 30 mpg which doesn't exist. Don't get me wrong, Toyota does it too, Prius 60 mpg? Yeah right, 50, yes, 60 no.
This is business, thousands of businesses fail every day. Maybe those businesses deserve a prop-up loan too? Survival of the fittest, GM is fat, slow and bloated (not as bad as Chrysler though), is it any wonder they're being eaten alive?
Please, take your propaganda elsewhere.

grieker
11/17/08
1:16 PM

The author could have placed any name in the "GM" field, for example BOSCOV.

The credit /banking/financial problem we're facing right now has nothing to do with GM going under. They have been going under for years, they CANNOT compete as he says.

WHY? UNIONS! Unions have and will continue to destroy companies throughout America. They have been successfully doing this for decades.

The reason there was such a push to get the minimum wage (who gets paid minimum wage) passed was because the union pay structure is based on the minimum wage pay.

GM and the others need to restructure and get rid of this union mentality that protects in-efficiency. Want to see in-efficiency in practice, when driving down the road and you come to a road construction site, take note of the one person digging and the 4 watching. WHY? Union. Most union shops are overstaffed, I have not taken the time to "google" this, but I have life experience with it and have found it to be true.

newsjunkie
11/17/08
1:55 PM

QUOTE (grieker @ Nov 17 2008, 02:16 PM) <{POST_SNAPBACK}>

Is Boscov's unionized?
<H1 class=red>"Toyota North America posts huge six-month loss</H1>Friday, November 07, 2008 Staff and wire reportsToyota lost $353 million in North America from April through September as sales collapsed and consumers turned to less profitable small cars instead of sport utility vehicles...."

I guess Toyota has profit problems because of unions too? Funny how all this profit trouble is coincidental with the banking crisis...but of course that's not the problem...

solitary
11/17/08
2:19 PM

QUOTE (grieker @ Nov 17 2008, 01:16 PM) <{POST_SNAPBACK}>

Unions have a role in the demise of the "domestic" auto makers no doubt, however, if the management of the union workers and the engineers had demanded a product that was worth the excessive price, perhaps they'd still be going strong.
I'd argue minimum wage increases are primarily a feel-good move by politicians pandering to those who don't understand economics, that's most of us.
The banking problem is going to make the downfall of the big three faster, automakers have routinely relied on credit to move their products, even though it's hard to get a loan (or so I've heard), they're still pumping the financing on their products, my guess is hoping you'll come in for a car you can't afford (like always, lured by great financing), and walk out with a car you can barely afford. A sale is a sale, a quickly disappointed customer pays the same as a happy one, so long as they're both happy when they sign the dotted line.

Freedom
11/17/08
2:27 PM

QUOTE (solitary @ Nov 17 2008, 02:19 PM) <{POST_SNAPBACK}>

Toyota will survive, why? Good product with a good reputation. Sensible management. Overall, good R&D, although any company as large as the one's we're discussing will have some real bombs, so I know someone will say "What about the Toyota Truck problems? They recalled three-quarters of a million of them". Which is true, parts of the suspension would wear out very prematurely and cause steering problems, steering is kind of important in a vehicle.
Unions have a role in the demise of the "domestic" auto makers no doubt, however, if the management of the union workers and the engineers had demanded a product that was worth the excessive price, perhaps they'd still be going strong.
I'd argue minimum wage increases are primarily a feel-good move by politicians pandering to those who don't understand economics, that's most of us.
The banking problem is going to make the downfall of the big three faster, automakers have routinely relied on credit to move their products, even though it's hard to get a loan (or so I've heard), they're still pumping the financing on their products, my guess is hoping you'll come in for a car you can't afford (like always, lured by great financing), and walk out with a car you can barely afford. A sale is a sale, a quickly disappointed customer pays the same as a happy one, so long as they're both happy when they sign the dotted line.

No bailout. Period. Let them eat cake..

Have a great day!!!

mam0412
11/17/08
2:40 PM

QUOTE (Lancaster Online @ Nov 17 2008, 10:50 AM) <{POST_SNAPBACK}>

The problem we face is the same one the rest of America faces. The housing crisis has paralyzed the credit market, and the automobile business relies on the credit market.

If that's the case, go back to your banks, they've now gotten bailout money and should be able to loan now.

QUOTE (Lancaster Online @ Nov 17 2008, 10:50 AM) <{POST_SNAPBACK}>

let me stress, we are not looking for a bailout. We are asking for a bridge loan that would be repaid in full, with interest.

All the more reason your banks should be able to lend to you.

The rest of the letter just sounds like a big "whine" festival.

newsjunkie
11/17/08
2:51 PM

QUOTE (mam0412 @ Nov 17 2008, 03:40 PM) <{POST_SNAPBACK}>

If that's the case, go back to your banks, they've now gotten bailout money and should be able to loan now.

All the more reason your banks should be able to lend to you.

The rest of the letter just sounds like a big "whine" festival.

But the banks are just sitting on the money, using it to reinforce their balance sheets and helping themselves deleverage..." (as well as free up thier cash for bonuses... http://finance.yahoo.com/tech-ticker/artic...M,BAC,C,WFC,XLFWASHINGTON - An impatient White House served notice Tuesday on banks and other financial companies receiving billions of dollars in federal help to quit hoarding the money and start making more loans.

"What we’re trying to do is get banks to do what they are supposed to do, which is support the system that we have in America. And banks exist to lend money," White House press secretary Dana Perino said.

Though there are limits on how much Washington can pressure banks, she noted that banks are regulated by the federal government." (Oct.28)

mam0412
11/17/08
3:13 PM

QUOTE (newsjunkie @ Nov 17 2008, 02:51 PM) <{POST_SNAPBACK}>

But the banks are just sitting on the money, using it to reinforce their balance sheets and helping themselves deleverage..." (as well as free up thier cash for bonuses... http://finance.yahoo.com/tech-ticker/artic...M,BAC,C,WFC,XLFWASHINGTON - An impatient White House served notice Tuesday on banks and other financial companies receiving billions of dollars in federal help to quit hoarding the money and start making more loans.

"What we're trying to do is get banks to do what they are supposed to do, which is support the system that we have in America. And banks exist to lend money," White House press secretary Dana Perino said.

Though there are limits on how much Washington can pressure banks, she noted that banks are regulated by the federal government." (Oct.28)

First, if a business or person has good credit, banks are still lending to them - with or without bailout money. So, something about that letter just stank. If they are in fact in good standing, then they shouldn't be having problems getting credit. So . . . the letter is a propaganda tool as Solitary pointed out - a lobbying effort. There are apparently other problems that the letter writer is unwilling to admit. He can whine all he wants to about unions and foreign governments paying health benefits of the competitors, but good companies adapt to the competition. Many US companies compete with foreign companies and do just fine. They are failing due to their poor decisions and nothing else.

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The case for bailing out Detroit

November 17th, 2008 11:48 am · 9 comments

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